EX-99.1 2 dex991.htm COMMUNITY BRIEFING PRESENTATION DATED MARCH 17, 2010 Community Briefing Presentation dated March 17, 2010
2010 Financial Community Briefing
March 17, 2010
Exhibit 99.1

Notice
The following slides are part of a presentation by Discover Financial Services (the "Company") and are intended to be
viewed as part of that presentation. No representation is made that the information in these slides is complete.
The information provided herein may include certain non-GAAP financial measures. The reconciliations of such
measures to the comparable GAAP figures are included in the Company’s Current Reports on Form 8-K dated March 1,
2010 and March 16, 2010 and Annual Report on Form 10-K for the year ended November 30, 2009, which are on file
with
the
SEC
and
available
on
the
Company’s
website
at
www.discoverfinancial.com.
Certain
reconciliations
are
also
included at the end of this presentation.
The presentation contains forward-looking statements. You are cautioned not to place undue reliance on forward-
looking statements, which speak only as of the date on which they are made, which reflect management’s estimates,
projections, expectations or beliefs at that time and which are subject to risks and uncertainties that may cause actual
results to differ materially. For a discussion of certain risks and uncertainties that may affect the future results of the
Company, please see "Special Note Regarding Forward-Looking Statements," "Risk Factors," "Business –
Competition,"
"Business
–
Supervision
and
Regulation"
and
"Management’s
Discussion
and
Analysis
of
Financial
Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended November 30,
2009, which is on file with the SEC.
Certain historical financial information about the Company that we have included in this presentation has been derived
from Morgan Stanley’s consolidated financial statements and does not necessarily reflect what our financial condition,
results of operations or cash flows would have been had we operated as a separate, stand-alone company during the
periods presented.
We own or have rights to use the trademarks, trade names and service marks that we use in conjunction with the
operation
of
our
business,
including,
but
not
limited
to:
Discover
®
,
PULSE
®
,
Cashback
Bonus
®
,
Discover
®
Network
and
Diners
Club
International
®
.
All
other
trademarks,
trade
names
and
service
marks
included
in
this
presentation
are
the
property of their respective owners.
2

David Nelms
Chairman &
Chief Executive Officer
March 17, 2010

Becoming the leading direct banking and payments company
4

Unique direct banking and payment services assets
Note:  Balances as of February 28, 2010; volume based on the trailing four quarters ending 1Q10
•
$46Bn in receivables
•
Leading
cash rewards program
•
1 in 4 U.S. households
•
$15Bn consumer deposits
•
$4Bn personal and student loans
Deposits and Other Lending
Deposits and Other Lending
U.S. Card Issuing
U.S. Card Issuing
•
$109Bn volume
•
4,400+ issuers
•
$97Bn volume
•
30+ issuers
•
$26Bn volume
•
50 franchises
•
185 countries/territories
5

•
Achieve disciplined, profitable
growth in cards
•
Expand other attractive direct
lending and savings products
Growth objectives to build shareholder value
•
Build robust global acceptance
network for credit, debit and
ATM through direct relationships
and alliances
•
Increase global volume leveraging
flexibility, multi-brand network
alliances and emerging
payments technologies
Direct Banking
Payment Services
Long-Term Financial Targets
•
10%+ Volume CAGR
•
5-10% Total Loans CAGR
•
15%+ ROE
•
10%+ EPS Growth
6

Today’s agenda
Jim Panzarino
EVP, CHIEF CREDIT RISK OFFICER
Roger Hochschild
PRESIDENT & CHIEF OPERATING OFFICER
Carlos Minetti
EVP, CONSUMER BANKING & OPERATIONS
Harit Talwar
EVP, CARD PROGRAMS & CHIEF MARKETING OFFICER
Diane Offereins
EVP, PAYMENT SERVICES
Payment Services
Personal & Student Loans
Deposit Products
Card Issuing
Credit Risk Management
2009 Review and
Growth Outlook
Financial Review
Roy Guthrie
EVP, CHIEF FINANCIAL OFFICER
Q&A
7

2010 Financial Community Briefing
David Nelms
Chairman &
Chief Executive Officer
March 17, 2010

2009 Review and Growth Outlook
Roger Hochschild
President &
Chief Operating Officer
March 17, 2010

10
•
Superior credit performance vs. competitors
–
Lowest managed net credit card charge-off rate in industry
•
Conservative loan growth
–
Most stable credit card receivables and sales
•
Increase net interest margin and revenues
–
82bps increase in net interest margin YOY
•
Reduce expenses
–
7% decrease YOY
•
Focus on capital/liquidity/funding
–
8.2% tangible common equity/tangible managed assets
2009 performance –
a year of significant accomplishments
Note
Refer to appendix for reconciliation of non-GAAP financial measures

12.1%
9.6%
9.3%
9.2%
8.7%
8.0%
DFS
AXP
COF
JPM
C
BAC
Industry leading charge-offs
Managed Net Credit Card Charge-off Rate (FY2009)
Source:  Public company filings
Note
1. Does not include Citi Holdings
(1)
11

Market share growth in volume and receivables
Volume YOY Change (FY2009)
Receivables YOY Change (FY2009)
(3,5)
(5)
Source:  Public company filings
Notes 
1.
Sales volumes only
2.
Reflects sales, cash advance + BT volume
3.
Reflects sales + cash advance volume
4.
Reflects global purchase volume
5.
Does not include Citi Holdings
(1)
(4)
(2)
(3)
12
-14.7%
-14.6%
-11.2%
-11.0%
-9.2%
-5.2%
DFS
COF
JPM
AXP
BAC
C
-1.3%
-4.5%
-14.1%
-15.0%
-15.7%
-15.9%
C
DFS
JPM
COF
AXP
BAC

$6.2
$7.0
$8.1
$10.2
$12.6
4Q08
1Q09
2Q09
3Q09
4Q09
Growth in Direct Banking
Direct-to-Consumer Deposits (Bn)
Personal & Student Loans (Bn)
$1.3
$1.8
$2.1
$2.7
$3.3
4Q08
1Q09
2Q09
3Q09
4Q09
13

$107
$81
$37
2007
2008
2009
Growth in Payment Services
Pretax Income (MM)
Number of Transactions (Bn)
4.4
4.2
3.8
2007
2008
2009
Note
Number of transactions on the Discover Network and PULSE network
14

Sales trends are now positive
State and Region YOY Sales Change (1Q 2009)
State and Region YOY Sales Change (1Q 2010)
<-9%
-6% to -9%
-3% to -6%
0% to -3%
0% to 3%
3% to 6%
6% to 9%
>9%
YOY Growth
15
-6%
-5%
-6%
-7%
-5%
-5%
-6%
-8%
8%
5%
4%
5%
6%
2%
3%
0%

2010 Focus
•
Superior credit risk
management
•
Gained share in
loans & sales
•
Expansion of lending
products & growth of
direct deposits
•
31% increase in PBT,
improved acceptance
•
Continued vigilance;
transition to growth
•
Achieve disciplined,
profitable growth
•
Establish leadership
position
•
Increase global
acceptance and volume
Summary
2009 Accomplishment
Area
Credit Risk
Card Issuing
Consumer
Banking
Payment
Services
16

2009 Review and Growth Outlook
Roger Hochschild
President &
Chief Operating Officer
March 17, 2010

Credit Risk Management
Jim Panzarino
EVP, Chief Credit
Risk Officer
March 17, 2010

Strong credit performance
•
DFS managed net credit card charge-off rate lowest in peer group (2009)
•
Balanced and surgical approach to loss mitigation
Well positioned for the future
•
Longer average customer tenure
•
Favorable geographic distribution
•
Impact of loss mitigation reflected in average delinquent
balance decline
Innovative strategies to optimize growth
•
Enhancements in analytic tools to adapt to the
changing environment
•
Continue to utilize new data sources
•
Increase judgmental processing
Discipline and innovation
19

Superior credit capabilities enhance profitability
2007
2008
2009
DFS
Industry
20
•
First in industry to use tradeline data
•
Early focus on customer cash flow
•
Continuous investment in analytics
•
Disciplined acquisition and
account management
•
New data sources
•
Trigger based strategies
Managed Net
Credit Card Charge-off Rate (%)
Source:  Earnings Releases
(1)
Note
1.
Industry includes AXP, BAC, COF, JPM, & C

Ongoing refinement of strategies
significantly improves performance
21
30+ Delinquency
6 Months After Acquisition
3Q07
3Q08
3Q09
Origination Date
Avg Delinquency Balance YOY Change
0%
2%
4%
6%
8%
10%
Average Acquisition FICO
737
727
738
1Q08
1Q09
1Q10
Total Contingent Liability (Bn)
$228
$193
$170
1Q08
1Q09
1Q10
Note
Refer to appendix for reconciliation of non-GAAP financial measures

Positive indicators of an improving environment
0%
20%
40%
60%
80%
100%
Source:  Bureau of Labor Statistics
Source:  National Bankruptcy Research Center
0%
20%
40%
60%
80%
22
Unemployment Rate
YOY Change
U.S. Bankruptcy Filings
YOY Change

•
Ongoing refinement of models and analytic tools
•
Continued to evaluate and implement new data sources
–
LTV –
home valuation data on customers with a mortgage
–
ARM –
timing and magnitude of resets
•
Increase customer engagement through manual / judgmental
processing of existing and potential customers
23
Innovative strategies to optimize long term profit
•
Question and challenge everything we do

Early use of LTV data further reduces risk
24
Loan to Value
Source:  Trans Union, LTV April 2009
Homeownership
Rent,
Other
Mortgages
Own
Outright
Rent,
Other
Negative
Equity
Own
Outright
Other
Mortgages
Loan to Value
No Additional
Treatment Needed
Closed
Lines
Lowered
Accounts Actioned

Getting ahead of the ARM reset wave
25
Source:  Credit Suisse RMBS Research
Monthly Mortgage Rate Resets ($Bn)
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Option ARM
All Other Mortgage Resets
DFS Mortgage Composition
Fixed
ARM
Source:  Trans Union, November 2009

Judgmental decisioning is a high return investment
26
Every $1 invested generates $10 return.
Every $1 invested generates $10 return.
As judgmental staffing
has increased…
4Q08
1Q10
6x
6x
Standard
Judgmental
…new account card
usage has increased…
+7%
+7%
Standard
Judgmental
+6%
+6%
…and more portfolio
good balances have been retained.
Standard
Judgmental
+9%
+9%
…new account
balances have increased…

27
•
Strong credit performance
•
Well positioned portfolio
•
Continued vigilance (LTV, ARM)
•
Innovative strategies to optimize future growth
•
Investment in judgmental decisioning
Opportunities exist for growth
and profit enhancement through credit risk strategies

Credit Risk Management
Jim Panzarino
EVP, Chief Credit
Risk Officer
March 17, 2010

Card Issuing
Harit Talwar
EVP, Card Programs &
Chief Marketing Officer
March 17, 2010

Key takeaways
•
Discover Card business expected to deliver normalized pre-tax
ROA of 2.5% -
3.0% post-CARD Act
•
Discover well positioned to grow and continue to gain market
share leveraging:
–
Attractive customer base
–
Expanding merchant acceptance
–
Leadership position in Rewards, Service and Value
30

Key Provisions
Discover’s Response
•
Elimination and/or restrictions on:
–
Existing balance re-pricing
–
Future balance re-pricing
–
Overlimit fees
–
Late and other fees
•
Changes in payment hierarchy
•
Enhanced disclosure
requirements
•
For existing
business, re-priced
and shifted to variable rates
•
For new
business, modified
promotional and standard pricing
•
Reduced balance transfer volumes
•
Expanding spend-based revenues
•
Seize value positioning opportunity
–
No nuisance fees
–
Sustain Rewards commitment
Response to CARD Act
31

Rebalanced portfolio mix
15%
16%
11%
9%
65%
64%
70%
79%
20%
19%
12%
20%
2007
2008
2009
2010F
Promo
Standard
Default
32
Balance Mix
Source:  Internal data

Post CARD Act continue to book profitable new accounts
33
Key Initiatives
•
“As Low As”
pricing
•
Modified promotional pricing
•
Focus on process enhancements to
increase usage and reduce CPA
New Account Profitability
Notes
1.
“Go To”
APR Margin –
represents difference between contractual non-promotional APR and effective prime rate
2.
The
percent
of
balance
transfer
dollar
volume
with
a
promotional
rate
greater than 12 months
3.
Accounts with at least one sales transaction in the first 90 days after account booking
1H 08
2H 09
"Go To"
(1)
APR Margin
8%
12%
Bal Transfer % >12 Months
(2)
43%
7%
90 Day Sales Active %
(3)
46%
54%
Acquisition Cost (indexed to 1H08)
(33%)

Business positioned to deliver target ROA
Discover
Card
Returns
(1)
Historical
1Q 2010
Normalized
Revenue
Margin
12.5%
13.5%
12 - 12.5%
Principal
Charge-
offs
5%
9%
5 - 6%
Operating
Expenses
5%
4%
4 - 4.5%
Pre-Tax
ROA
2.5% - 3.0%
1%
2.5% - 3.0%
(2)
(3)
•
CARD Act impact mitigated by:
–
Balance mix
–
Pricing changes
–
Expanding spend-based revenues
•
Operating efficiencies allow for investments
in growth and marketing
•
Expect normalized pre-tax returns
of 2.5% -
3.0%
Notes
1.
Revenue margin includes net interest margin and other card-related revenues and fees net of rewards expense.  Operating expense % is based
on Direct Banking expense ratio
2.
Historical represents 10 year average
3.
Excludes changes in loan loss reserves
34

Key takeaways
•
Discover Card business expected to deliver normalized pre-tax
ROA of 2.5% -
3.0% post-CARD Act
•
Discover well positioned to grow and continue to gain market
share leveraging:
–
Attractive customer base
–
Expanding merchant acceptance
–
Leadership position in Rewards, Service and Value
35

Married with children
•
Average age: 44
•
Average HHI: $97K
•
73% married
•
21% more likely to have kids
•
70% attended college
•
80%+ own their home
Large, seasoned
customer base
•
25% of U.S. households
•
Highest average tenure
in industry
•
Balanced customer base –
~40% revolver / 60% transactor
•
Geographically diverse
Traditional, family
focused & responsible
•
Prioritize dinner with family
•
Plan for future, avoid splurging
•
Church and charity activities
•
Prefer to pay with credit
Value and quality
•
Buy styles built to last
•
Not easily swayed by others
•
Kohl’s, Macy’s, Sam’s Club
•
Chili’s, Olive Garden, and
Red Lobster
Attractive customer base and target profile
36
Source:  Internal Data, MRI / Simmons / TNS

Brand well positioned
Source:  Millward Brown Brand & Ad Tracking Survey, 4Q09; Recommend  = percent strongly/somewhat agree with statement. Primary
cardmembers = those respondents who say they use that brand’s card most often to make purchases. Consideration = percent saying either “it
would be my first choice”
or “I would seriously consider it.”
30%
32%
38%
38%
40%
44%
JPM
DFS
COF
AXP
BAC
C
Consideration
(among general population)
Recommend to a Friend
(among brand’s primary cardmembers)
82%
78%
73%
73%
72%
69%
DFS
AXP
C
BAC
JPM
COF
37

56%
61%
65%
4Q07
4Q08
4Q09
Expanding acceptance driving sales
38
Cardmember Perception
of Acceptance
Source:  Brand & Ad Tracking Study, 4Q09, Millward Brown
Note:  Sales impact based on previously non-accepting and accelerated sign-up of new merchants
$1Bn
$2Bn
$3Bn
2008
2009
2010E
Sales Impact
“Discover is a card that
is accepted everywhere
I want to use it”

Driving growth across customer segments
39
•
Brand ambassadors
•
Nurture / protect
•
Leverage expanding Acceptance
Key Priorities
Key Metrics (’09 vs. ’08)
•
Spend share
(1)
+120bps
•
Reinforce Rewards and Service to
deepen engagement and shift spend
•
Leverage expanding Acceptance
•
Capitalize on competitor missteps
•
Leverage Rewards, Value, and
expanding Acceptance
•
% Primary
(2)
+269bps
•
% Sales Active
(3)
+750bps
•
90-day sales active
+400bps
•
Focus on Brand engagement and usage
•
Profitable growth
Primary
Active
Inactive
New
Accounts
1.
Spend share represents customer DFS sales as a % of estimated total customer credit card sales –calculated for primary cardmembers
2.
Primary cardmembers defined as customers with 15+ transactions in a month; as % of total open & good standing accounts
3.
Sales Active accounts defined as customers with at least one sales transaction in a month; as a % of total open & good standing accounts
Notes / Source:  Internal Data

40
•
Sustainable cash rewards leadership
•
Driving business results
Leveraging our competitive advantages
REWARDS
SERVICE
VALUE

8%
3%
13%
14%
62%
Cash
Rewards
Airline
Miles
Gift
Cards
Gas
Rebate
Other
Reward Preference
(1)
Best Cash Rewards
(2)
Notes
1.
Among credit card customers who receive rewards
2.
Brand Tracker:  Monthly survey with 3,000 respondents per quarter; percent unaided brand association with the phrase "best cash rewards”
Source:  JD Power 2009 Credit Card Satisfaction Study
Source:
Brand
Tracker
–
4Q09,
Millward
Brown
Cash
Rewards
leadership
–
general
population
22%
9%
7%
4%
4%
3%
DFS
JPM
AXP
COF
C
BAC
41

42%
55%
63%
65%
70%
84%
DFS
AXP
JPM
C
BAC
COF
Source:  Brand
Tracker
–
4Q09, Millward Brown
Note:  Brand Tracker:  monthly
survey
with
3,000
respondents
per
quarter, conducted since 1998; % of respondents who somewhat/strongly agree
with statement
86%
70%
65%
62%
53%
37%
DFS
AXP
JPM
C
BAC
COF
Discover
Rewards
leadership
–
primary
cardmembers
42
Has Rewards that are Easy to Earn
Has Rewards that are Easy to Redeem

Earn
Redeem
•
Over 275 unique partner relationships
•
Partner-funded programs more than doubled in 2009. Contributed
~15% incremental Rewards value to our customers
Discover Network enhances cash rewards
43

Increasing enrollments while reducing costs
44
Reward
Program
Enrollments
(1)
(MM)
Rewards Cost
(2)
(% Sales)
6
8
10
12
14
16
18
20
2005
2006
2007
2008
2009
0.70%
0.72%
0.74%
0.76%
0.78%
0.80%
0.82%
0.84%
2005
2006
2007
2008
2009
Notes
1.
Enrollments include 5%, Double and all other programs requiring sign-up
2.
Represents Discover Rewards expense as a % of total sales volume

Non-Enrolled
Enrolled
Rewards enrollment performance
Average Annual Sales
Charge-off Balance
Average Annual PBT
Voluntary Attrition
Non-Enrolled
Enrolled
Non-Enrolled
Enrolled
Non-Enrolled
Enrolled
23%
(24%)
10%
(48%)
Note
1.
Measured
as
time
series
lift
in
performance
before
and
after
enrollment
in
Rewards
programs
as
compared
against
a
representative
group
of
non-enrollees
Source:  Internal data analysis, 2009
45

46
•
Consistent investments
•
Driving business results
Leveraging our competitive advantages
REWARDS
REWARDS
SERVICE
VALUE

Customer service core to brand experience
47
Investments in Call Center
Metrics
•
100% U.S.-based, average tenure
5+ years
•
Specialized, industry leading call
routing matches customers with
target agents
•
World class
(1)
first call resolution
of 90%+
•
Industry leading fee product cross-sell
capabilities –
18% penetration vs.
industry average of 11%
(2)
•
Key distribution channel
–
50% of rewards enrollments
–
40% of balance transfer volume
Note
1.
SQM Benchmark (2008)
2.
3Q 2009 Argus Report

Online leadership increasingly integral to the business
Business Impacts
756
761
761
769
771
802
816
Citi Cards
Capital One
Bank of
America
Chase
Industry
Average
American
Express
Discover
Card
JD Power –
2009
Discover ranked #1: Web Site Interaction Satisfaction
Customer engaged in the channel:
•
Contribute 75% of the sales volume
•
Carry 60% of the balances
Delivering efficiencies, engagement, usage
•
75% of all new customer applications
•
62% of rewards redemptions
•
50% of rewards enrollments
Source:  J.D. Power and Associates, 2009 Credit Card Satisfaction Study
48

49
•
Fair, consistent pricing
and credit decisions
Leveraging our competitive advantages
REWARDS
SERVICE
VALUE

Opportunity to claim value leadership
50
•
Remain committed to Rewards
and Customer Service
•
Did not introduce nuisance fees
•
Portfolio quality has allowed
balanced approach to credit line
and pricing decisions
Source:  Brand & Ad Tracking Study, 4Q09, Millward Brown
Primary
Cardmembers
Total
Population
DFS
77
35
AXP
76
34
JPM
68
35
Peer Avg
64
30
BAC
61
26
C
60
27
COF
53
28
Provides Excellent Overall Value (%)

51

Leveraging our competitive advantages
52
Case Study: 4Q 2009 Marketing
Case Study: 4Q 2009 Marketing
REWARDS
SERVICE
VALUE

4Q 2009 Marketing: leveraging Rewards
53
Sales Transfer Offers
Sales Transfer Offers
Redemption
Redemption
Offers
Offers
Earn Programs
Earn Programs

4Q 2009 Marketing: leveraging merchant partners
54

4Q 2009 Marketing: leveraging point of sale
Malls
Malls
$10 Off –
Discover
cardmember offer
Black Friday Home page takeover
Cart Marquee unit
Pandora/Amazon Partnership
55
Online
Online

4Q 2009 Marketing: leveraging multi-channel advertising
Television
Television
Print
Print
Radio
Radio
Strong local market coverage (>30%)
with national overlay
56
Online
Online

4Q Calendar Sales Comparison (YOY %)
-9.5%
-9.1%
-3.0%
-2.5%
0.1%
2.5%
DFS
AXP
COF
BAC
C
JPM
57
•
8+ billion impressions
•
Discover Rewards investments higher by 48%
•
Partner contributions increased 188%
•
Customer enrollments increased 56%
Source:  Internal data and public company filings
Notes
1.
Sales volumes only
2.
Reflects sales + cash advance volume
3.
Reflects global purchase volume
4.
Reflects sales, cash advance + BT volume
4Q 2009 Marketing: results
(1)
(2)
(3)
(2)
(4)

Key takeaways
•
Discover Card business expected to deliver normalized pre-tax
ROA
of
2.5%
-
3.0%
post-CARD
Act
•
Discover well positioned to grow and continue to gain market
share leveraging:
–
Attractive customer base
–
Expanding merchant acceptance
–
Leadership position in Rewards, Service and Value
58

Card Issuing
Harit Talwar
EVP, Card Programs &
Chief Marketing Officer
March 17, 2010

Personal & Student Loans
Deposit Products
Carlos Minetti
EVP, Consumer Banking
& Operations
March 17, 2010

61
Direct Banking expansion well underway
•
Expanded into additional lending businesses with
attractive economics:
–
personal loans
–
student loans
•
Significantly grown our consumer deposits business
•
Extended reach of the Discover brand and attracted
new customers / segments
•
Leveraged customer base, marketing & underwriting capabilities,
and low cost direct-to-consumer service delivery model

62
PERSONAL
LOANS
STUDENT
LOANS
CONSUMER
DEPOSITS

63
Personal loans are an attractive growth opportunity
•
Favorable trends in the demand for personal loans
–
Changing consumer behavior
–
CARD Act curtails risk based pricing
–
Sharp decline in alternatives
•
Compelling value proposition to prospective customers
•
Leverages Discover’s underwriting competencies
•
Attractive financial returns with proper risk management

64
$100Bn+ personal loans market, recent
originations impacted by downturn in credit market
Source:  Experian Information Solutions analysis, 2010
$129.1
$142.6
$136.8
$118.9
2006
2007
2008
2009
$63.1
$67.3
$54.9
$36.2
2006
2007
2008
2009
Receivables (Bn)
Loan Originations (Bn)

Further market growth will be fueled by
contraction in personal loan alternatives
~90% decline
(Originations –
Bn)
$0
$20
$40
$60
$80
$100
$120
(New BT –
Bn)
Source:  VISA and MasterCard Supplemental Operational Performance Data 2009, Inside Mortgage Finance study, January 2010
~60% decline
$0
$10
$20
$30
$40
$50
$60
Home Equity Market
Visa & MC Cash/BT Volume
65

66
Typical Discover Personal Loan customer
FICO 740
Annual income 
$80K
Total revolving debt
$20K
Credit card
balances $12K
with rates
ranging
from
16.99% to 20.99%
Homeowner
Debt consolidation
One monthly
payment
Lower rate & clear
timeline to payoff
debt
Loan of $15K
Paid off all outstanding
credit card balance
Duration –
60 months
Fixed APR 13.99%
No pre-payment
penalties
Monthly
payment
-
$350
First year savings   
$300-$500
Customer Needs
Customer Profile
Discover
Personal Loan
Solution

67
Delivered compelling value proposition
and differentiated customer experience  
•
Competitive rates
•
Personalized
experience
•
Financial control
Value Proposition
•
By invitation only
•
Judgmental
underwriting
•
Same day creditor
payoff
Customer Experience

68
Card industry pricing structure allows us to offer better rates
Avg
APR
Avg
Loss Provision
Risk based pricing
0%
4%
8%
12%
16%
660-679
680-699
700-719
720-739
740-759
>759
18%
Pricing
opportunity
Source:  Argus report 3Q 2009, Fair Isaac card performance data, internal analysis

69
Disciplined portfolio growth
$1.3
$1.4
$1.5
$0.4
$0.6
$0.9
$1.0
$1.2
$1.2
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
Personal Loan Ending Receivables (Bn) 

Underwriting capabilities have been continuously enhanced
•
Generic credit bureau score
(i.e., FICO)
•
Income verification for marginal
applications
•
Disposable income criteria
•
Recent changes in debt levels
•
Custom risk scores + credit
bureau scores
•
Income, employment
verification
•
Individualized cash flow
analysis
•
Balance build & early
delinquency models
•
LTV / mortgage data
70

Credit performance better than industry in all risk segments
13.45%
N/A
Sub Prime
Near Prime
Prime
Super Prime
Industry 
DFS
7.3%
4.5%
2.4%
1.8%
1.3%
Source:  TransUnion
study 2010
Note:  Based
on
2008
vintage,
industry
includes
BAC,
C,
COF,
JPM
and WFC
% of Personal Loans 60+ Days Delinquent 
71
N/A

72
Product is structured to deliver solid financial returns
8.5%
3.0%
4%
1.5%
Net Interest
Income
Loss
Provision
Operating
Expenses
ROA
Target

73
PERSONAL
LOANS
STUDENT
LOANS
CONSUMER
DEPOSITS

74
Attractive opportunity for growth in student loans
•
Growing demand driven by rising college enrollments and cost
of attendance
•
Adding new, upwardly mobile customers to Discover
•
Leveraging Discover’s strengths in marketing and underwriting
•
Solid financial returns on private loans

75
Market growth driven by higher enrollment and tuition costs
Source:  College Board, Trends in Student Aid (2009)
65
66
73
84
18
21
22
12
2005-06
2006-07
2007-08
2008-09
Private
Federal
$83
$87
$95
$96
5.0%
CAGR
•
~19MM students enrolled in
colleges and graduate schools
•
Tuition costs have increased at
6% CAGR, faster than inflation
Industry Loan Originations
by Academic Year (Bn)

76
Value proposition addresses needs of customers and schools
Financial Aid Office
100% solution
Simplicity
Graduation
rewards
Student & Parents
Reliable lender
Responsible 
borrowing
Support school
preferences

77
•
750+ schools have Discover
on preferred lender list
•
50% of top 100 colleges
•
50% of top 50 medical /
MBA schools
•
DiscoverStudentLoans.com
•
Search (Yahoo, Google)
•
Comparison sites
Diversified acquisition model creates marketing advantage
School
Channel
Online
•
Discover customers
•
Broad market
•
Schools
Print
Note:  Top 100 colleges and top 50 medical/MBA schools based on U.S. News annual rankings

Federal Loan Ending Receivables (Bn)
78
Established strong presence as a provider of federal loans
•
Government sets interest rate
and guarantees against losses
•
Department of Education
administers ECASLA
programs that create liquidity
for new loan origination
•
Discover is eligible to
participate in ECASLA
$1.9
$0.1
$0.2
$0.4
$0.5
$1.0
$1.3

79
Legislative changes proposed for federal loans
•
Student Aid and Fiscal Responsibility Act  (SAFRA)
–
Requires all new federal loans be originated via Direct
Loan program
–
Invests in Pell Grant scholarships over next 10 years
–
Reengineers the Perkins Loan Program
–
Establishes College Access Challenge Grant Program
•
SAFRA passed in the House in Sept 2009, no action taken
in the Senate
•
Schools are voluntarily migrating to Direct Loan program

80
Steady growth and future opportunities in private loans
$0.3
$0.5
$0.8
$0.3
$0.1
$<0.1
$0.6
•
Became top 5 provider of
private loans in 2009
•
Established position through:
–
superior customer service
–
strong school relationships
–
competitive pricing
•
High rate of repeat borrowers
Private Loan Ending Receivables (Bn)

High quality portfolio points to strong credit performance
FICO Distribution
Superior Portfolio Profile
•
Only 4-year colleges and
graduate schools
•
Proprietary underwriting criteria
•
High cosigner rate
•
100% certified by school
•
100% disbursed through school
Source:  Fitch rating/DBRS, industry data for 2002-07 ABS pools
4%
13%
25%
58%
19%
26%
27%
28%
<670
670-710
711-750
750+
Industry
Discover
81

82
Private loans positioned to deliver solid returns
4.5%
2.5%
1%
1%
Net Interest
Income
Loss
Provision
Operating
Expenses
ROA
Target

83
PERSONAL
LOANS
STUDENT
LOANS
CONSUMER
DEPOSITS

84
Deposits business is
an important component of our Direct Banking model
•
Direct-to-consumer deposits is the fastest growing segment
of the deposits market
•
Valued source of liquidity with attractive characteristics for
asset/liability management
•
Competitive all-in costs given the direct delivery model
•
Offers additional relationship building opportunities
for Discover

85
Direct banks positioned to take share from traditional banks
Overall industry deposits in 2Q 2009
Overall industry deposits in 2Q 2009
100%
100%
=
=
$8.4Tr
$8.4Tr
(1)
(1)
Direct bank
deposits
$0.2Tr (3%)
Brokered
deposits
3
$0.7Tr (8%)
All other
deposits
(2)
$2.3Tr
(27%)
Deposits
largely tied
to brick &
mortar
Source:  First
Manhattan
Consulting
Group
study;
FDIC
reports
as
of
6/30/09
and
selected
news
articles
Notes
1. Total
deposits
taken
from
sum
of
branch
office
data
from
2Q
2009
and
credit
union
data;
totals
within
5%
of
Fed
Flow
of
Funds
total
deposit
values
from schedules L.109, L.114, and  L.115 (Commercial Banking, Savings Institutions, and Credit Unions)
2. All other deposits includes: corporate, municipal, escrow, other consumer/small business deposits in HQ branches, etc.
3. Sum of all brokered deposits from regulated depositories as of 2Q 2009
$17
$30
$45
$65
$104
$150
$200
$245
$294
2001
2002
2003
2004
2005
2006
2007
2008
2009
YTD
2001-2009
CAGR: 43%
Overall Deposits Mix
Direct Deposits Market Growth

86
Value proposition resonates with consumers
Competitive rates
Convenience
Confidence

87
Customer service channels reinforce ease and convenience
Superior
customer service
Convenient
online
access
+

88
Unique acquisition model creates competitive advantage
•
Lower acquisition costs
•
Higher loyalty
•
More attractive
demographics
•
Overall brand
awareness
Broad market
Affinity 
partners
Discover card
relationship

89
Strong quarter over quarter growth
% of
DFS
funding
6%
7%
9%
11%
13%
15%
19%
22%
25%
$6.9
$8.1
$10.2
$12.6
$14.8
$6.1
$4.8
$3.8
$3.2
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
Direct-to-Consumer Deposit Growth (Bn)

90
Portfolio exhibits desirable loyalty attributes
At acquisition
6 months
post
acquisition
+120%
higher
Source:  First Manhattan Consulting Group study, 2010, internal data
(% of balance renewing)
12-month CD Renewal
Average Savings Balance
63%
69%
77%
73%
1st maturity
2nd maturity
Branch
DFS

91
Deposits priced comparably to other funding options
12-month CD
36-month CD
3.37%
60-month CD
3.05%
Direct-to-Consumer posted rates
ABS AAA benchmark
DFS Rates vs. Derived Benchmark (March 2010)
1.59%
1.36%
f
2.38%
2.37%
f
1.
ABS AAA derived benchmark rates based on indicative ABS pricing. Derived benchmark rates adjusted to reflect CD renewal behavior
2.
Direct-to-consumer deposit rates as of March 05, 2010
Notes

Consumer Lending and Deposits well positioned
for future expansion in the marketplace
•
Achieved impressive results in Consumer Lending
and Deposits
–
~$15Bn in direct-to-consumer deposits
–
~$4Bn in consumer lending receivables
•
Extended the Discover Brand beyond credit cards
•
Established a solid foundation for further growth
•
Well positioned to capitalize on shifting market dynamics and
consumer behaviors
92

Personal & Student Loans
Deposit Products
Carlos Minetti
EVP, Consumer Banking
& Operations
March 17, 2010

Payment Services
Diane Offereins
EVP, Payment Services
March 17, 2010

•
Domestic PIN
debit network
with global ATM
acceptance
•
$109Bn volume
•
4,400+ issuers
•
Domestic acceptance
network for Discover
proprietary cards and
third-party issuers
•
$97Bn volume
•
30+ issuers
Payment Services –
a unique set of assets
Note:  Balances as of February 28, 2010; volume based on the trailing four quarters ending 1Q10
•
Global payments
network targeting
upscale customers,
frequent travelers and
corporate clients
•
$26Bn volume
•
50 franchises
•
185 countries/territories
95

Alliances
with
regional
players
–
value
chain
Expanding
the
payments
network
globally
through
alliances
Issuers
Network
Alliances
Consumers
Network
Network
Merchants
Acquirers
96

Key priorities are acceptance and volume
Acceptance:
•
Completing implementation of new merchant acquiring model in U.S.
•
Achieving card acceptance across Discover and Diners Club networks
•
Extending global cash access for Diners Club and Discover cards
through PULSE
•
Broadening international footprint
Drive Volume Growth:
•
Leverage network to grow Discover Card
•
Expand existing issuer programs
•
Increase issuer base
•
Build non-traditional volume
97

Expanding U.S. acceptance to drive higher sales
•
Signed agreements with 100+
merchant acquirers representing
98%+ of U.S. merchants
•
Included with 97% of all new
merchant sales in 2009
•
Enabled over 1MM previous
non-acceptors
•
Building awareness through
cost effective marketing
•
30 day active merchants over
the last three years has
increased 21%+
77%
90%
97%
77%
79%
85%
2Q06
2Q08
4Q10E
Acquirer Enabled Merchants
Merchant Stated Acceptance
Sources
1.
Internal company reports
2.
GfK Roper
(1)
(2)
98

Executing on Diners Club Network interoperability
•
Moved 97%+ of Diners Club North American volume from
foreign-issued DCI cards onto Discover Network
•
Enable Discover Card acceptance at Diners Club locations
outside the U.S.
–
Implementing / validating 43+ countries
–
Focusing on top 25 markets for U.S. travelers
•
Goal of 125 countries/territories by year-end 2010
99

Building a global ATM network
Global Cash Access Build Out
Core Volume Opportunities:
•
Diners Club
•
Discover international ATM usage
•
Expand PULSE to Canada / Mexico
Emerging Volume Opportunities:
•
DCI Local / Local ATM acceptance
•
Network-to-Network programs
•
Expansion of PULSE cards
Global ATM
Network
•
Over 675,000 ATMs
•
Coverage in over 70 countries
and continuing expansion
Achieving Global Acceptance
100

Beyond interoperability
Diners Club Coverage
Latin America –
2.0 MM
Asia Pacific –
3.3 MM
EMEA –
2.0 MM
Discover Network Coverage
North America –
7.7 MM
Asia Pacific –
2.7 MM
Coverage
(Service Establishments)
101

Key priorities are acceptance and volume
Acceptance:
•
Completing implementation of new merchant acquiring model in U.S.
•
Achieving card acceptance across Discover and Diners Club networks
•
Extending global cash access for Diners Club and Discover cards
through PULSE
•
Broadening international footprint
Drive Volume Growth:
•
Leverage network to grow Discover Card
•
Expand existing issuer programs
•
Increase issuer base
•
Build non-traditional volume
102

Leveraging the closed loop model to drive volume
Value-added marketing programs
drive additional volume:
•
Cashback
Bonus
®
•
Shop Discover
•
Discover Extras
103

•
Flexible and highly scalable
•
Creating robust alliances
•
Variety of innovative products
•
Payroll / other prepaid
•
Selective retail co-brands
•
Closed loop / campus prepaid
•
Alternative payment providers
Discover Network embracing emerging
opportunities/technology
104

•
Deliver superior “all-in”
value proposition
•
Focus on securing PIN debit
relationships based
on exclusivity
•
Enhance and expand fee-based
products and services
•
Invest in technology to maintain
“best in class”
service offerings
1.9
2.3
2.7
2.9
2006
2007
2008
2009
Number of Transactions (Bn)
PULSE –
expand and optimize
105

Investing in Diners Club
®
volume growth
106

Diners Club –
reinvigorated
North
America
22%
LATAM
15%
EMEA
36%
Asia
Pacific
27%
Note
Includes all Diners Club branded volume
Volume by Region
(1)
Priorities
•
Completion of interoperability
•
Accelerating franchise
management and
business development
•
Expand issuance in
emerging markets
•
Continue to secure existing
and new corporate business
•
Sharing of intellectual property
107

Strong growth in volume and profits
$29
$37
$81
2006
2007
2008
2009
$107
$107
94
96
60
70
86
106
$79
$146
$163
$186
$221
91
90
85
79
1
3
5
6
6
109
26
13
$232
2004
2005
2006
2007
2008
2009
V/MA
Antitrust
ruling
Volume Growth by Business (Bn)
Strong Profit Growth (MM)
(TPI)
(Proprietary)
Note
For fiscal years ending November 30
108

Entrenched Industry Model:
American mega-brands
dominate the market
Emerging Global Model:
Alliances of key regional players are
creating the new global network
Discover is poised for the rise of the regional players
A new global network model
109

BC Card Background:
•
Largest domestic network
in South Korea
•
11 Member banks and
2.62 million merchants
•
~2 billion transactions
processed in 2008
“Our new alliance with Discover opens the door to providing BC Card
customers with more opportunities to make purchases and access
cash around the world, especially in the U.S.”
–
Chang Hyung-duk   
President and CEO of BC Card
Opportunity:
•
BC Card members to gain global
acceptance outside S. Korea via Discover,
DCI & PULSE
•
Transactions in S. Korea routed on the BC
Card Network 
•
BC Card to expand ATM acceptance for
Discover /PULSE / Diners in S. Korea
Global opportunity seized
110

Payment Services
Diane Offereins
EVP, Payment Services
March 17, 2010

Financial Review
Roy Guthrie
EVP, Chief Financial Officer
March 17, 2010

Financial performance
As Adjusted
1Q10
1Q09
$
Net Interest Income
$1,145
$1,176
($31)
Other Operating Revenue
546
             
547
             
(1)
                 
Total Revenue
$1,691
$1,723
($32)
Net Charge-offs
$1,082
$829
$253
Reserve Changes build/(release)
305
             
648
             
(343)
            
Total Provision for Loan Loss
$1,387
$1,477
($90)
Total Operating Expense
475
             
559
             
(84)
              
Pretax Income
($171)
($313)
$142
Income Tax Expense
(67)
             
(117)
           
50
                
Net Income (Loss)
($104)
($196)
$92
EPS
($0.22)
($0.41)
$0.19
YOY Change
Note: 1Q09 amounts have been adjusted to remove the impact of the Visa and MasterCard antitrust litigation settlement. 1Q09 amounts have also been
adjusted
to
reflect
the
impact
that
FASB
Statements
No.
166
and
167
(as
defined
in
the
appendix)
would
have
had
on
the
financial
information
presented.
For
a
reconciliation
of
“as
adjusted”
non-GAAP
financial
measures,
see
appendix.
113

Reserve Balance
Loan loss reserves
5.31%
5.05%
30+ delinquency rate declined 25bps
30+ delinquency rate declined 25bps
114
Note
Refer to appendix for reconciliation of non-GAAP financial measures
$1.8
$2.1
$0.3
$4.2
4Q09
FAS 166/167
Reserve Actions
1Q10

Conservative balance sheet
As Adjusted
1Q10
1Q09
$
Assets
Cash, Cash Equivalents & Investment Securities
$13.6
$9.0
$4.6
Loan Receivables
50.1
  
50.9
  
(0.8)
           
Allowance for Loan Losses
(4.2)
   
(3.4)
   
(0.8)
           
Other Assets
7.3
    
4.7
    
2.6
            
Total Assets
$66.8
$61.2
$5.6
Liabilities
Deposits
$35.1
$28.3
$6.8
Borrowings
22.4
  
25.4
  
(3.0)
           
Other Accrued Expenses & Liabilities
2.3
    
2.5
    
(0.2)
           
Total Liabilities
$59.8
$56.2
$3.6
Equity
7.0
    
5.0
    
2.0
            
Total Liabilities and Equity
$66.8
$61.2
$5.6
YOY Change
115
Note: 1Q09 amounts have been adjusted to remove the impact of the Visa and MasterCard antitrust litigation settlement.  1Q09 amounts have also
been adjusted
to
reflect
the
impact
that
FASB
Statements
No.
166
and
167
(as defined in the appendix) would have had on the statements had been
effective
for
the
quarter.
For
additional
information
and
a
reconciliation
of
“as
adjusted”
non-GAAP
financial
measures,
see
appendix.

Contingent liquidity sources
Liquidity Reserve
Committed Credit
ABCP Open Lines
Fed Discount Window
2Q10 –
1Q11 Maturities (Bn)
2.4
3.4
5.6
3.5
$22.1
$18.6
$12.6
$7.7
4.0
1.5
Liquidity (1Q10)
Maturities
(2Q10-1Q11)
4Q10
3Q10
2Q10
1Q11
116

Funding mix
45%
39%
31%
40%
34%
30%
22%
36%
11%
5%
3%
4%
2008
2009
2010E
31%
11%
17%
20%
26%
54%
20%
69%
48%
1%
3%
2008
2009
2010E
Asset Backed Securitizations
Brokered Deposits
Direct-to-Consumer and Affinity Deposits
Other
Year End Balance Mix
Issuance Mix
$55
$57
$21
$18
117

13.2%
8.6%
9.7%
9.8%
10.3%
10.7%
10.8%
DFS
JPM
C
COF
BAC
AXP
Strong capital ratios
4Q09
Tier
1
Capital
Ratio
(1)
Notes
Refer to appendix for reconciliation of non-GAAP financial measures
1.
Pro
forma
capital
ratios
including
the
impact
of
FAS166/167,
DFS
Tier
1
capital
includes
TARP.
Sourced
from
2009
10-K.
For
FAS
166 / 167
adjustments, if range provided, uses midpoint of the range.
2.
Total capital includes $350 million of sub debt that Discover Bank intends to issue in the second quarter, subject to market conditions
DFS 1Q10 Capital Ratios –
Pro Forma Excluding TARP
•
Total capital
(2)
14.4%
•
Tier 1 capital
10.9%
•
Tier 1 common
10.9%
•
Tangible common equity/         8.1%
tangible assets
Excl.
TARP
118

119
Well positioned for growth
•
Discover represents unique set of direct banking and
payment services assets
•
See opportunities for profitable growth and share gains leveraging:
–
Rewards
–
Service
–
Value
–
Direct-to-consumer banking platform
–
Growing global acceptance
–
Network alliances
•
Solid foundation of credit management capabilities
and strong capital and liquidity reserve

Appendix
120

Reconciliation of GAAP to Non-GAAP data
121
Financial Performance (in millions)
As Reported
(GAAP)
Managed
Adjustments
Managed
(Non-GAAP)
Adjustments
As Adjusted
(Non-GAAP)
Net Interest Income
503
$             
662
$             
1,165
$          
11
$                
1,176
$          
Net Charge-offs
434
396
830
-
830
Reserve Changes build/(release)
504
-
504
144
648
Total Provision for Loan Loss
938
396
1,334
144
1,478
Antitrust Litigation Settlement
475
-
475
(475)
-
Other Operating Revenue
715
(266)
449
98
547
Total Operating Revenue
1,190
(266)
924
(377)
547
Total Operating Expense
559
-
559
-
559
Pre-tax Income
196
-
196
(510)
(314)
Income Tax Expense
76
-
76
(193)
(117)
Net Income (Loss)
120
$             
-
$              
120
$             
(317)
$            
(197)
$            
Earnings Per Share
0.25
$            
-
$              
0.25
$            
(0.66)
$           
(0.41)
$           
1Q 2009

Reconciliation of GAAP to Non-GAAP data (cont’d)
122
Balance Sheet (in billions)
As Reported
(GAAP)
Managed
Adjustments
Managed
(Non-GAAP)
Adjustments
As Adjusted
(Non-GAAP)
Assets
Cash, Cash Equivalents and Investment Securities
10.0
$            
-
$              
10.0
$            
(1.0)
$             
9.0
$              
Total Loan Receivables
28.1
22.8
50.9
-
50.9
Total Allowance for Loan Loss
(1.9)
-
(1.9)
(1.5)
(3.4)
Other Assets
4.4
(0.2)
4.2
0.5
4.7
Total Assets
40.6
$            
22.6
$            
63.2
$            
(2.0)
$             
61.2
$            
Liabilities
Total Deposits
28.3
$            
-
$              
28.3
$            
-
$              
28.3
$            
Total Borrowings
3.8
22.6
26.4
(1.0)
25.4
Other Accrued Expenses and Liabilities
2.5
-
2.5
-
2.5
Total Liabilities
34.6
22.6
57.2
(1.0)
56.2
Equity
6.0
-
6.0
(1.0)
5.0
Total Liabilities and Equity
40.6
$            
22.6
$            
63.2
$            
(2.0)
$             
61.2
$            
1Q 2009

1Q 2010
4Q 2009
Tangible Common Equity ("TCE") (in millions)
Common Equity (GAAP)
5,854
$           
7,277
$           
Less: Goodwill and Intangibles
(450)
               
(451)
               
Less: Adjustments
-
                 
(1,332)
            
TCE (as adjusted)
5,404
$           
5,494
$           
TCE as a % of Tangible Assets
8.8%
15.0%
Less: Adjustments
-
                 
(6.8)
                
TCE as a % of Tangible Assets as adjusted (non-GAAP)
8.1%
8.2%
TCE as a % of Total Loans (GAAP)
12.8%
31.2%
Less: Adjustments
-
                 
(19.5)
              
TCE as a % of Total Loans as adjusted (non-GAAP)
11.8%
11.7%
123
Note: Tangible common equity ("TCE"), a non-GAAP financial measure, represents common equity less goodwill and intangibles.
Other financial services companies may also use TCE and definitions may vary, so we advise users of this information to exercise
caution in comparing TCE of different companies.  TCE is included because management believes that common  equity excluding
goodwill and intangibles is a more meaningful valuation to investors of the true net asset value of the company.
Reconciliation of GAAP to Non-GAAP data (cont’d)

2010 Financial Community Briefing
March 17, 2010